95) Unit Trust Asset Allocation for Retirement

95) Unit Trust Asset Allocation for Retirement

In Unit Trust Investments, there are 3 main asset types:
a) Equity
b) Bond
c) Money Market

You can group Bond and Money Market as Fixed Income. So, now there are only 2 asset types.

Constructing a balanced portfolio means allocating different percentages of your investment amount into the 2 asset classes. The models determine the percentages of your asset allocation into the Equity and Fixed Income funds.

Equity funds are more volatile and may give high returns. However, equity funds can give negative returns in a bad stock market year. Fixed Income have more stable returns and usually gives positive returns every year.  With a combination of both Equity and Fixed Income funds, you will be able to balanced out the returns.

Below are 3 Asset Allocation models for Retirement. The 3 models below are very simple models to follow.

A) PRS Model
Private Retirement Scheme (PRS) is a scheme for retirement purpose. The model uses your age to determine your asset allocation into the Equity and Fixed Income funds. A younger person will be able to take higher risk. Furthermore, a young person can invest longer before the retirement age.

The PRS model divides into 3 age groups:
a) Below 40 years old
Asset Allocation:
Equity: 70%
Fixed Income: 30%

b) Above 40 to below 50 years old
Asset Allocation:
Equity: 60%
Fixed Income: 40%

c) Above 50 years old
Asset Allocation:
Equity: 20%
Fixed Income: 80%

 

B) Rule of Thumb Model

Rule of Thumb also uses the age as the allocation to Fixed Income investments. Your age is used as the percentage into Fixed Income funds.

a) Age 25 years old
Asset Allocation:
Equity: 75%
Fixed Income: 25%

b) Age 40 years old
Asset Allocation:
Equity: 60%
Fixed Income: 40%

c) Age 65 years old
Asset Allocation:
Equity: 35%
Fixed Income: 65%


C) Benjamin Graham's Model
Benjamin Graham's model uses the individuals risk profile to determine the asset allocation models. An aggressive investor should allocate more into Equity funds. A Conservative investor should allocate more into the Fixed Income fund. While the Moderate investor have equal percentages into Equity and Fixed Income funds.
 
a) Aggressive Investor
Asset Allocation:
Equity: 75%
Fixed Income: 25%

b) Moderate Investor
Asset Allocation:
Equity: 50%
Fixed Income: 50%

 
c) Conservative Investor
Asset Allocation:
Equity: 25%
Fixed Income: 75%

With the 3 different models, you have a guide on how to allocate your investments. In each Equity and Fixed Income funds, there are many funds to choose from.

In Equity funds, you can further diversify your funds by choosing different funds. There are many funds with different investment objectives. Do understand how you can invest into funds from different countries and regions, market capitalization, fund objectives, etc.

Do look around in the internet for the different models recommendation. There are many different models to choose and follow. The important thing to know is to diversify your investments into different asset types to spread your investment risk.

Another thing to note is that you have more fund choices if you have larger amount to invest. Investments using cash is also more flexible compared to using your Special Retirement Funds.  

Do consult professionals and understand your requirements.

94) Benefits to Corporate Investing in Unit Trust

94) Benefits to Corporate Investing in Unit Trust

Unit Trust vs Fixed Deposit
1) Interest earned from Fixed Deposit will be subjected to corporate tax of 25% (current as of 2017). Unit trusts returns are tax exempted.
2) High liquidity in Unit Trust. No fixed or minimum tenure as in Fixed Deposit.
3) Withdraw any amount without redeem the full amount. Ed. Fixed Deposit $100,000 had to be fully redeemed even you need only $20,000. Withdraw any amount from unit trust.
4) Consolidate savings into 1 account, instead of multiple FD accounts.

Invest in Equity Funds
1) Potential to earn higher return from investments with acceptable risk levels.
2) Diversify the investments into different asset classes. Invest in Equity, Bonds and Money Market.
3) Diversify the equity fund investments into different countries, regions and even global funds.
4) Hedge on long term currency fluctuations when invest in foreign funds.

93) UTC Sales Ideas #1 - Promote to Stock Market Traders

93) UTC Sales Ideas #1 - 

Promote Unit Trusts to Stock Market Traders

Stock Market Investors are used to stock price high volatility.
Making fast money and losing fast as well.

Their common complain is that Unit Trust is Sssssssslllllloooooooowwwwww.

In certain perspective, they are right. Unit Trust prices only change once a day, and it is only published on the next day. The price of the Unit Trust fund is calculated based on the closing prices of all the assets in the fund. The total Net Asset Value is then divided by the number of units in the fund to get the Net Asset Value per Unit.

Stock prices can change very frequent, sometimes in a blink of the eye. In the stock market, you make money by buying low and selling high.



Compared to stock prices, the Unit Trust price changes are very sssslllllloooowww.

Question: What is shortest duration you can make money by price changes in Unit Trust?
Answer: Once a day.

Furthermore, Unit Trusts are a portfolio of multiple assets and diversification. A typical equity fund has about 50 different stocks, many bonds and even money market instruments. The diversification reduces the risk of a specific asset or stock.

Specific Stock Risks means that your investment performance relies on only that one stock. Your profit or lost depends on the price changes of that stock.

There are also limitations that a fund can invest into a specific stock. An equity fund can only invests up to 10% of its Total Net Asset Value (NAV) into one stock. If the particular stock value increases above 10% of the total NAV, the fund has to sell away part of the stocks. This is to reduce its value to below 10% again within a specific duration.

Unit Trusts allows you to invests into multiple stocks. Using Unit Trusts, you can easily invest into foreign stocks. As a retail investor, you need to study about the company's financials to know about its business profitability. In Unit Trust foreign equity funds, the fund managers will do all the studies for you.

Furthermore, for a better quality financial reports, you need to pay to subscribe for the reports prepared by investment research companies. That will be additional costs to you.

The switching facilities also allows you to move your investments into different assets types or countries quickly. For example, you are currently invested into Malaysia equity fund. Now you feel that there is a better opportunity in Australia stocks. You can easily switch your investments into Australia fund. After a few months, you feel that China Stocks has higher potential. Then again, you can easily switch into a China equity fund.

If you had invested into actual shares in Malaysia, you have to sell the Malaysia shares. Then transfer your money into an Australia stock broker. After few months, you sell off the Australia stocks and transfer the money back to Malaysia. Now you have to transfer the money to a China stock broker.

The cost to transfer the money and foreign exchange conversion spread costs will reduce your profits from the shares. 

It also takes a lot of your time to go to the bank to do the money transfers.

With Unit Trusts, it is very convenient, lower cost and time savings.

As a summary:
a) Diversification
b) Foreign investments
c) Lower cost
d) More Convenient 
e) Less time needed

More readings:

71) Benefits of Unit Trust vs Share Investment.

http://highlevelrules.blogspot.com/2017/07/unit-trust-vs-share-investment.html

127) Time In vs Timing the Market
https://highlevelrules.blogspot.com/2017/10/time-in-vs-timing-market_24.html 

177) Investing vs Trading
https://highlevelrules.blogspot.com/2018/05/timing-vs-trading.html

92) Sales Person Challenge #1 - 4 Fears

92) Sales Person Challenge #1 - 4 Fears



Below are the 4 fears of a Sales Person and these fears block the salesperson own success.
This happens in all businesses that requires face to face discussion.

The 4 Fears:
1) Scared of meeting him
2) Scared of meeting her
3) Scared of talking to him
4) Scared of talking to her

As a salesperson, you need to be able to explain your products and services to people. Your fear that blocks you from meeting people is a challenge you need to overcome.

Do find out and understand what is the actual fear that stops you.
Is it product knowledge, experience or any other reasons

Once you know the reasons, then you can conquer the fear one by one.


Awareness Before Change

91) Investor Challenge # 6 -No Trust in the Product

91) Investor Challenge # 6 -No Trust in the Product

Investor will never said it out but this may be one the main reason they refused to invest.

They have no trust in the product.

There are so many news of scams and failed products. Many investors had lost money and make the other investors to be cautious of anything unfamiliar.

In dealing with Unit Trust,  there are many rules, regulations and laws. Let your clients and friends know about the various organizations that are involved to regulate and protect the investors' money. 

Below are some of the building trust factors in the Malaysia's Unit Trust Industry:

a) Capital Market and Services Act (CMSA) 2007
The is the law that governs the Capital Market in Malaysia. This includes the Unit Trust and Private Retirement Schemes.

b) Securities Commission
The Securities Commission have many strict rules on many things. The Securities Commission checks and approves the people and organizations in the Capital Market industry. 

c) Bank Negara
The Bank Negara Malaysia or the Central Bank of Malaysia also have many regulations regarding the financial products and services.

d) Independent Auditors.
The Unit Trust Management Company has to appoint external independent Auditors to check the accounts and practices.

e) Scheme Trustee
Each Unit Trust fund has an independent Trustee to be the custodian of the funds asset. The Scheme Trustee has to be independent from the Unit Trust Management Company (UTMC) and other companies involved in the Unit Trust scheme.

f) Federation of Investment Managers Malaysia (FIMM)
The Federation of Investment Managers Malaysia registers all members involved in the Unit Trust industry. They also regulates the Unit Trust Management Companies and Unit Trust Consultants (UTC).

g) Computerized Unit Trust Exam (CUTE Exam)
There is minimum required "O" Level or SPM exam qualifications with credits in Mathematics and one language. All Unit Trust Consultants (UTC) also have to study and pass the CUTE Exam before allowed to become a UTC.

h) Continuous Professional Development (CPD)
All UTCs are required to complete a few required trainings before allowed to promote the Unit Trust funds. Many trainings are organized by the UTMC to keep improving the UTC knowledge and skills. The CPD hours are required before a UTC is allowed to renew his or her Unit Trust "license". This is to ensure continuous learning of new skills and knowledge.

i) Internal Audit and Compliance departments. 
The Unit Trust Management Company (UTMC) has internal auditors and compliance department to check and supervise the daily UTMC operations.

j) Long History
Unit Trust industry in Malaysia started since 1959. So, the industry is not something new.

k) Many Investor Accounts
There are more than 18,000,000 Unit Trust Accounts as of 30 Apr  2017. There are so many people already invested in the Unit Trusts.

l) Huge Market Invested
There are more than RM405 Billion of Net Asset Value in the Unit Trust industry as of 30 Apr 2017

Source:https://www.fimm.com.my/industry-statistics/quick-statistics/

Unit Trust industry in Malaysia has a long history with many investors already invested for a long time. In the long term, Unit Trust had shown that the investments grew in value.

With so many rules, regulations and a long history with a large amount already invested, the potential, new and existing investors will have the Confidence and TRUST in the Unit Trust investment products.